How much does a student loan really cost?

How much are monthly student loan payments? How many student loans can you take out? What's the average student loan payment? Before you take on student loan debt, understand exactly what they'll cost in total—and what your repayment responsibilities will be.

If you’re not aware of your student aid terms and conditions, student loan interest rates, and other fine print, however, you could find yourself carrying a lot of student debt after graduation, and maybe even regret your college choice and financial aid decisions later. In other words, you’ll want to know how much your student loan will really cost you, over time, before signing the dotted line.

At Edmit, we want to increase transparency around what you’ll pay to go to college, while maximizing student negotiating power to ensure you’re getting the best net price for your college education. After all, the more affordable your college degree is, the fewer student loan debt you’ll have—which means more flexibility in your career and life choices later.

So let’s discuss all things student loans. (If you have questions about your specific financial aid situation and how student loans can impact your college financing, compare financial aid offers with Edmit and/or speak with the financial aid counselors at the college you hope to attend.)

Which Types of Student Loans Can You Apply For?

There are two types of student loans available: federal student loans and private student loans. Both will need to be repaid after graduation, with interest.

Federal Student Loans

Federal student loans are available in four categories: Subsidized, Unsubsidized, Direct PLUS, and Direct Consolidation. Subsidized student loans are need-based and only go to undergraduate students; unsubsidized student loans are not need-based and are available to undergraduate, graduate, and professional students. Direct PLUS loans can go to graduate or professional students or to parents of dependent undergraduate students, while Direct Consolidation loans go to students who would like to put all of their student loans into one loan account.

Private Student Loans

Private student loans refer to loans used for education from private lenders, such as banks or local credit unions.

If you’re planning to take out student loans, exhaust all federal student loan options first before going to a private lender. You’ll typically pay lower interest rates with federal student loans, and may be able to defer repayment, request an income-based repayment plan, or even get loan forgiveness with your federal student loan servicer.

Know How Student Loan Interest is Calculated

Many students wonder: "How much do I owe on student loans?" Whether you take out a federal student loan or a private student loan, you’ll want to fully understand the loan terms, including interest rate and repayment requirements, so you can figure out exactly what you’ll be paying over time. When reviewing your student loan documents, zero in on:

The amount borrowed—exactly how much the student loan is for

The interest rate—How much interest will be charged on the student loan

The first payment date—When you’re expected to make the first payment on your student loan (e.g., six months after your graduation date)

The amount of payments—Sometimes called the loan schedule, this covers how many payments you’ll be expected to make on your student loan (e.g., monthly for 20 years or 240 payments)

Here’s where federal subsidized and unsubsidized student loans can make a big difference: Subsidized loans do not accrue interest while you’re in school; unsubsidized loans start accruing interest from their issue date. This means that a subsidized loan, issued during your freshman year of college, sits interest-free for four years, while an unsubsidized loan in that same amount, issued at the same time, would have a larger amount at graduation (because it had accrued interest during that same period).

Once you know your student loan amounts, interest rate, and terms, you’ll get an understanding of what the student loans will actually cost you after graduation.

Anticipate Your Salary after Graduation

While we don’t have a crystal ball and can’t predict your starting salary after graduation, there are ways to estimate ballpark amounts to determine what you’ll be earning—and what you can put toward repaying your student loans once you’ve gotten your two-year or four-year degree. Use Edmit to get the latest data on average salary after graduation (as well as the total typical debt after graduation) for the schools that interest you, keeping in mind these may differ by your particular circumstances. You can also get in touch with alumni networks and deans at the respective academic departments you’re considering to get more specifics on starting salaries by major, region, and industry for recent grads.

By having a ballpark salary in mind, you can create a potential budget for your post-college life, and see how much money you’ll be able to allocate toward your monthly student loan payments. Armed with your preliminary budget, you can determine whether a particular student loan’s terms will work with your long-term financial plan, career goals, and anticipated cost-of-living expenses.

Once you’ve understood the terms of your student loans and estimated your starting salary, it’s time to crunch the numbers. There are no shortage of student loan calculators available (a Google search for “student loan calculator” led to more than 2 million results), but the Federal Student Loan Repayment Estimator is a good place to get started (and you won’t get any sales pitches while you’re using it, either).

The goal is to determine the true cost, with interest, of your potential student loan debt. Let’s use the average American’s student loan debt as an example. In our scenario, recent graduate Paul has $33,000 in student loan debt, broken down as follows:

STUDENT LOAN

AMOUNT

INTEREST RATE

TERM

MONTHLY PAYMENT

TOTAL PAID

Federal Subsidized

$30,000

4.00%

10 years

$304

$36,449

Federal Unsubsidized

$2,000

5.00%

10 years

$50

$2.700

Private

$1,000

7.2%

5 years

$20

$1,194

TRUE COST

$33,000

$374

$40,342

Based on our hypothetical scenario, Paul should plan on budgeting $374 for student loan payments each month for 10 years after graduation, and he’ll pay a total of $40,342 on his initial $33,000 in student loans. (That extra $7,342 is from accrued interest on the initial student loan amounts.)

Note: This scenario doesn’t take any additional variables into account, such as advance payments on the principal or varying interest rates. If Paul pays more than his minimum payments each month, he could pay his student loans off faster. If he has variable interest rates on his student loans (a possible scenario with his private student loan), his monthly payments and total amount repaid will both change.

Conduct a similar exercise when reviewing student loan options at the colleges you’re considering. (And if you’re not happy with the numbers, consider looking for a better financial aid package that includes more “free money” for college such as grants and scholarships.)

Know the Impact of Student Loans on Your Life and Goals

What you’ll pay for college is a major financial decision that should be approached as an informed consumer. Keep emotions to a minimum and keep your values, goals, and that potential monthly student loan payment in mind. As we mentioned, when used wisely, student loans can put a four-year degree within reach. But if student loans are taken out with little understanding of what they entail, they can impact your credit score—and put a pause on major milestones such as buying a home, getting married, and having children. By knowing the true cost of your student loans, you’ll be able to choose a college that’s a good financial fit and set yourself up for success.

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Founded by recognized university leaders, Edmit provides personalized insights and advice to help families find colleges that meet their academic goals and are within their financial means. Families that use Edmit make smarter college choices leading to less debt and better earnings outcomes, saving thousands of dollars.